When you add up all the automation of all the algorithms, all the hundreds of people who had to touch those goods or transport them in some way, it’s in total one of the most complicated endeavors that human beings ever engage in…
…And we take it for granted because all of that has been rolled behind this ultimate convenience of one click ecommerce shopping.
~ Christopher Mims, Technology Columnist for the Wall Street Journal
Could Pony Express do it better?
Rick imports the toys from China.
His business was booming. Until things began to change.
It all started when his trusted freight forwarding company quoted him $30,000 to ship a single container from China to the US, ten times what it cost him the year before.
The products arrived at the Port of Los Angeles. But the train carrying his products from the port to Chicago took 45 days.
Rick observed, “Pony express could have gotten it here faster.”
The shipping containers finally arrived. But Rick could not access them. They were stuck at the bottom of a pile of containers…for nine weeks.
The rail line charged him for storage.
Rick Waldenburg paid a million dollars in storage fees in September alone after paying ten times the normal shipping cost.
This was all because of the supply chain crisis, which forces us to wonder: Is now a good time to sell on Amazon?
December 12, 2019: A cluster of patients in Wuhan, China experience shortness of breath and fever.
March and April of 2020: 43 governors across the United States order residents to stay at home, minus essential trips for survival.
Economists predict that demand for goods will sink, and yet…the exact opposite happens: people buy things like the end times are here.
And not just toilet paper and hand sanitizer. But everything. With limited access to pleasantries like travel, restaurants, and the theater, people start spending their pleasure funds on online products instead of in-person services.
The rise in online spending fuels demand for more manufacturing.
More manufacturing leads to fleets of cargo barges stacked with containers en route from China.
More cargo ships from China leads to clogged shipping ports along the United States’ west coast. The ports of Los Angeles and Long Beach look like a fleet of invading ships.
More than 80 ships loiter out at sea, waiting their turn for orders to dock.
Covid hits southern California and thousands of longshore workers call in sick.
With a reduction in labor force and an explosion in shipping container numbers, the problem exacerbates itself as the supply chain starts to choke on rising demand.
Ker Gibbs, from the American Chamber of Commerce in Shanghai used a curious phrase. He said, “5 to 1.”
For every five shipping containers filled with products leaving the ports in China, only one is returning.
So where are the other four?
Piling up in the ports of southern California.
The port of Los Angeles and its neighboring port of Long Beach are now just two of five major ports dotting the US’s Pacific coastline. Together these two ports account for 40% of all of US imports and nearly 30% of America’s exports.
In the words of Gene Seroka, Executive Director of the Port of Los Angeles, “[These ports are] a critical gateway to the American economy.”
The massive clog at these two ports spurs a colossal ripple effect that hits everyone—from the college student waiting for her Amazon-purchased USB drive to land on her front doorstep to the businessman trying to book a car rental to get home to his family after a draining three week business trip.
How this could impact you
So let’s say you're an Amazon seller in 2022. And you are selling umbrella hats.
Your products sit patiently inside one of those containers on one of those ships waiting to unload in the US.
After weeks of waiting its turn, your ship is finally given a berthing assignment, meaning it can float into its assigned dock slot.
The ship slides in, and a sky-high crane reaches down, latches onto the container with your umbrella hats, and hoists it into the air, moving it to a yard where it will wait to be loaded onto an 18-wheeler truck.
Your product waits. And it waits. And it waits.
A shortage of inland truckers
Why do your umbrella hats have to wait so long for a truck driver?
That’s a relevant question considering the Department of Transportation states that truckers move 70% of all US freight by value.
The problem is not a lack of truck drivers like mainstream media often claims, but a lack of truck driver retention. There are presently 3.5 million active truck drivers in the US. However there are 10 million US citizens who possess a commercial driver's license. In other words, there are 10 million drivers who can drive a truck…but 6.5 million no longer want to.
And while the port waits for truckers, more containers keep coming in.
Something has to be done with your container of umbrella hats. So the yard rents a warehouse and stuffs your products inside, until an 18-wheeler truck can pick them up.
This explains the bill you receive for warehousing costs, months later.
The truck finally arrives.
Your container is loaded onto the semi, and the truck drives your container to the Inland Empire where it is offloaded at a distribution center and your umbrella hats are processed.
Once processed, your umbrella hats are loaded into a long haul truck—another 18-wheeler—that carries your goods across the country to an Amazon fulfillment center. There, robots and humans will stock your umbrella hats and load them into the fulfillment center, ready to be shipped to Amazon customers.
Strains on shipping container supply and demand
The above scenario is not an isolated event.
More and more, US ports end up with thousands of empty containers and no one willing to pay to ship them back to China empty. So the containers sit until there are goods to fill them with to justify the cost.
To give some perspective, in 2008 184,000 cargo vessels were in China. In 2020, that dropped to 127,000 vessels. Yet China’s export value of goods increased by $125 billion during that same time period.
In other words, during the same time period that China’s export demand grew by $125 billion, the number of cargo vessels in China fell by 57,000.
This leads to a huge demand for shipping containers. What happens when supply goes down while demand goes up?
Shipping companies start buying more containers so they can export goods from China to meet demand.
And how do they pay for these inflated shipping container costs? By raising shipping prices.
For example, just a couple years ago, Just One Dime Amazon sellers would pay $5,000 to $8,000 in shipping fees per container. Today it’s anywhere from $15,000 to $30,000. The highest we have seen to date is $42,000 to ship a single container.
And for all the increased shipping costs, timelines are actually getting longer.
Energy shortages and delayed production timelines
With increases in online shopping, factories and equipment run more hours each day than ever before. The increase in energy consumption leads to an electricity shortage in China.
This is why last fall in the city of Shenyang, in the dead of night, hundreds of cars came to a halt on a darkened highway when the street lights went out for hours.
Within months, energy restriction laws sweep the landscape of China and suddenly Chinese authorities are forcing factories to work only three days a week. Fewer factory production days means production times get pushed out as more and more factory orders pile up.
To give you an example, we ordered products last June and the supplier said they would be ready in a month and a half. That supplier did not finish production until September. The carrier said the products would take five to six weeks to ship. The products shipped out in the month of September but did not show up at Amazon’s fulfillment centers until January.
Forcing factories to work reduced hours creates another unexpected twist of events: The cost of manufacturing goes up.
To counteract these forced restricted hours of production—which equates to massive revenue reduction—factories begin raising their prices just to sustain their operating expenses.
And it's rarely just one factory that causes the rise in manufacturing prices. It’s more like a web of events that send ripples throughout the entire supply chain.
Covid-19 continued to play a part in supply chain woes, even as recently as March of 2022, when an outburst of Covid cases hit the Chinese city of Shenzhen. Implementing their zero tolerance policy, China put the city’s 17.5 million residents on lockdown, even closing Apple’s factory, Foxconn.
Although China loosened their lockdown restrictions just weeks later, the ripple effect this caused in the global supply chain had already begun.
For example, let’s say you order your umbrella hats from a Chinese manufacturer. Rarely does only one factory produce a single product. Your umbrella hat is made up of at least three different raw materials that no single factory can produce.
Factory Bobby McGee Industries might be your point of contact, and they design the hat, but they don’t sodder the parts, weave the fabric, or paint the handle. They outsource to other factories.
So even if your point-of-contact factory is not in a province impacted by China’s energy reduction laws, that factory is likely working with other factories…who are. Your product can only be produced as fast as the slowest factory.
So is now a good time to sell on Amazon FBA?
Just like catching the flu, supply chain crises do not last forever.
And just like your shadow, problems don’t go away by running from them.
I will give you five reasons why I am convinced now is still a good time to sell on Amazon FBA:
1. Many won’t, which puts you ahead of the competition.
When others finally join the FBA train, you will be far ahead of them.
2. Obstacles are not a good reason to give up.
Delays do not mean failure.
Price increases do not mean zero profits.
There is always a way.
You just might have to fight a little harder and wait a little longer.
Nobody has achieved anything noteworthy without adversity.
3. The supply chain crisis is slowly getting better.
To use one of many examples, as of Friday, May 6, 2022, only 35 ships were waiting to unload their cargo at the ports of Los Angeles and Long Beach.
Just three months before that number was almost double.
4. China is getting heavy competition as a sourcing country.
In the last few months we’ve had suppliers and sourcing agents from non-Chinese countries reach out and ask if we’d like to source from them instead. Now, the supply chain crisis is worldwide, so getting away from China does not completely remove the challenge.
But it absolutely can ease it.
We are beginning to see more manufacturing in the US as evidenced by Samsung building a plant in Tayler, TX and Intel putting $20 billion down to build a facility in Ohio.
5. Sourcing internationally is not your only option.
What about sourcing domestically?
Yes, it’s going to be much harder to find competitive prices. Even that problem, however, is surmountable: Just consider the reduced shipping costs you’ll face if your products don’t have to travel by air or sea.
Alternatively, if you turn your Amazon business into something like online arbitrage—buying discounted products from retail stores and then selling these for 2 to 2.5 times more on Amazon—you make a profit on the difference.
There is always a way.
You cannot control what happens around you.
But you can control you.
Understanding the chain of events in the China/US supply chain crunch
- Covid 19 is born in Wuhan, China and quickly spreads to other parts of the world.
- Lockdowns around the world motivate consumers to spend more on online goods than in-person services like never before.
- Increased online spending results in greater demand for more manufacturing—especially in factory-centric countries like China.
- Soaring manufacturing demand leads to more cargo barges shipping from China.
- A greater volume of exporting goods means US shipping ports get clogged with the swell of incoming ships.
- This clog results in too few shipping containers left in China; Shipping lines purchase more containers at inflated costs.
- Shipping companies pass expenses on to their customers by raising shipping rates.
- The lack of cargo ships in China, with the swell in demand for more manufacturing of products, causes shipping prices to rise even more.
- The clog of shipping barges at the ports on the US’s West coast, combined with thousands of longshore workers calling in sick from contracting the virus, results in a labor shortage and contributes to worse clogs at US ports.
- The increase of cargo ships in the US intensifies the need for more truck drivers to deliver these goods to distribution and fulfillment centers across the US.
- A lack of truck drivers means space must be rented to store containers temporarily until enough trucks can come by to pick up the goods.
- The increase in rental costs means the owners (retailers) of these temporarily-stored goods are charged storage fees.
- The continued increase of online buying raises the demand for more manufacturing in China, which means factories consume far more energy, spurring a country-wide electricity shortage.
- An extremely cold Chinese winter in 2020-2021 contributes to more energy consumption which exacerbates the energy shortage problem.
- This leads to Chinese governing authorities forcing factories to work limited hours in efforts to save energy.
- China forces blackouts in various parts of the country to save energy.
- The forced blackouts and restrictions in factory production time leads to delays in production and production deadlines get pushed further and further out.
- The delays in production lead to factories raising prices to counteract their down production time.
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